The new law requires employers with fewer than 500 employees to provide paid sick leave to employees who are forced to stay home due to quarantining or to care for a family member (“qualified paid sick leave”) or to care for a child if the school or place of care is closed (“qualified family leave”). The bill compensates employers and the self-employed for this paid leave in the form of a tax credit.
Only a very small portion of the Act provides tax changes. The Act is largely focused on funding for increased coronavirus testing, ensuring free testing for everyone, and continuing student lunch programs when schools are closed.
In the case of sick leave wages paid by an employer to an employee, the employer receives a refundable credit against its share of either the OASDI and the RRTA portion (as applicable) of the payroll tax. The credit can be claimed on a quarterly basis, equal to 100 percent of the amount of sick leave wages paid under the new law. The amount of the credit is limited to $200 per day. However, the credit is increased to $511 per day if the employee is on leave because he or she: is subject to a federal, state or local quarantine or isolation order related to COVID-19; has been advised by a health care provider to self-quarantine due to concerns related to COVID-19; or is experiencing symptoms of COVID-19 and seeking a medical diagnosis. The amount of total hours of paid sick leave is limited by the new law and the payroll tax credit is limited to 10 days of wages.
For family leave wages paid by an employer, a separate refundable payroll tax credit applies, with different limitations. The 100 percent credit against the employer’s share of the payroll tax is limited to $200 per day, up to an aggregate of $10,000.
For self-employed persons, the credit is allowed against regular income taxes. The limit on sick leave wages is determined by multiplying the number of days (subject to limitation) the self-employed person is unable to perform services in the trade or business by the lesser of 67% of the taxpayer’s average daily self-employment income, or $200. The limits are increased to 100% and $511, respectively, in the case of the three scenarios that also apply to the employer payroll tax credit. The same calculation is made for family leave wages, with days unable to perform services (no more than 50) multiplied by the lesser of 67% of the taxpayer’s average daily self-employment income, or $200.
The new law provides numerous requirements, limitations and definitions relating to the application of the mandate, as well as the credit.
As mentioned above, these provisions are all temporary. The credits are applicable from the date selected by the Secretary of the Treasury (which must be within 15 days of the date of enactment) until December 31, 2020. The tax provisions do not make changes to the Internal Revenue Code.